SEYLAN BANK LTD v. MANCHESTER YARN AND THREAD (PVT) LTD

047-SLLR-SLLR-2004-V-3-SEYLAN-BANK-LTD-v.-MANCHESTER-YARN-AND-THREAD-PVT-LTD.pdf


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Seylan Bank Ltd v Manchester Yam and Thread (Pvt.) Ltd 303
SEYLAN BANK LTDvMANCHESTER YARN AND THREAD (PVT) LTDSUPREME COURT
S.N. SILVA, C. J.WIGNESWARAN, J.WEERASURIYA, J.
SC 28/2003CALA192/2000DC COLOMBO 13039/MRSEPTEMBER 4, 2003
Monetary Law – section 2 and section 4(2) – Civil Procedure Code, section 5and section 217 – Is a party entitled to obtain judgment in a currency otherthan in Sri Lankan Rupees? – Judgment prayed for in a foreign currency -Principle of Restitutio-in-Integrum-Consensus-ad-idem – Court of Appeal(Appellate Procedure) Rules of 1990 – Rule 4 (12).
Held:
PerWigneswaran, J.
“When section 2 of the Monetary Law refers to the standard unit of monetaryvalue in Sri Lanka as being the Sri Lankan Rupee it does not mean thatjudgments cannot be given in foreign currencies, it could only be inferred thatwhere foreign currency is not available for payment or seizure what should beseized should be converted to the standard unit of monetary value in Sri Lankabecause the foreign currency is not a standard unit of monetary value in Sri
Lanka”.
/
Standard unit being Sri Lankan rupees does not mean that othercurrencies are not recognized in Sri Lanka.
The plaintiff must necessarily be entitled to judgment in a currency whichhe expected at the time when the breach took place. The principles to beapplied are that of Restitution-in-integrum and reasonable foreseeability.
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Not to pay in a currency in which the contract was entered into would
amount to an absence of consensus ad idem.
Per Wigneswaran, J.
“Merely because the late 19th century and early 20th century decisionswere made by Courts that judgments shall not be given in a foreigncurrency at a time when nations and state were functioning more orless in water tight compartments, it does not mean that those decisionsmust be given effect to in the 21st century as well when nations arejoining together in economic unions and trade and commerce havetranscended the frontiers of national boundaries".
Any attempt to restrict decrees to be entered only in Sri Lankancurrencies would affect International Trade and Commerce via SriLanka in the modern context. During the last 28 years currencies havebeen seen to be floating and their relative values have often changed.
APPLICATION where the Court of Appeal granted leave to appeal to the
Supreme Court acting under Rule 4 (12) of the Court of Appeal Rules 1990.
Cases referred to:
Cementation Company (Overseas) Ltd., v Hotel International Ltd. – 1986- 1 Sri LR 262 (not followed).
Mercantile Agency v Ismail – 26 NLR 326
Harrisons & Crossfield v Adamaly- 5 CWR 32
Schorsch Meier GMb H v Hennin – 1974 – 3 NLR 823 – 75 All ER 152
MV Eleftherotria v Owners of MV Despina R – 1975 – 1 All ER 153
Services Europe Atlantique Sud (SEAS) & Stochhalum –
Rederiaktie Bolagsvea of Stockholon (the Folias – 1978 – 3 WLR 804
Millangos v George Frank (Textile) Ltd. 1975 3 WLR 758
Tehhu (owners) & Owners of Cargo & Freight v Nippon SalvangeCompany 1969 3 WLR 1135.
Yugoslavenska Oceanska Plovidba v Castle Investment Company -1973 3 WLR 847.
Romesh de Silva PC with Shanaka de Livera and Sugath Caldera fordefendant-petitioner.
A. P. Niles with Arjuna Kurukulasooriya and K. Jeyaraj for plaintiff-respondent-respondent.
SCSeylan Bank Ltd v Manchester Yarn and Thread (Pvt.) Ltd 305
(Wigneswaran, J.)
December 19, 2003WIGNESWARAN, J.
The plaintiff-respondent, Manchester Yarn and Thread (Pvt)Limited (hereinafter referred to as respondent) filed an action in theDistrict Court of Colombo against the defendant petitioner-petitioner, Seylan Bank Limited (hereinafter referred to aspetitioner), praying for judgment in a sum of 12,857/- sterlingpounds or its equivalent in rupees together with legal interest andcosts. The petitioner filed answer claiming inter alia that therespondent was not entitled to judgment in a currency other thanSri Lankan rupees and that the respondent cannot have andmaintain the said action as therein constituted. The issue as towhether the respondent was entitled to obtain judgment in acurrency other than Sri Lankan rupees was taken up as apreliminary issue of law. The District Court answered the said issuein favour of the respondent. The said order in this regard becamethe subject matter of an interlocutory appeal before the Court ofAppeal.
When this matter came up before the Court of Appeal it waspointed out that the District Judge had followed the decision of theSupreme Court in the Cementation Company (Overseas) Limited vHotel International Limited (1) and since the said judgment wasbinding on the District Court, as well as the Court of Appeal, theCounsel for the petitioner moved the Court of Appeal to dismiss hisappeal and to grant Leave to Appeal to the Supreme Court on thequestion of law raised in appeal. Rule 4(12) of the Court of Appeal(Appellate Procedure) Rules of 1990 was referred to in this regard.Acting under the said Rule, the Court of Appeal without hearing thecase proforma dismissed the petitioner’s appeal and granted thepetitioner leave to appeal to the Supreme Court on the followingquestion of law –
“Assuming that the facts had been correctly set out in the plaint,is the plaintiff in any event entitled to obtain judgment in a currencyother than Sri Lankan rupees?"
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[2004] 3 Sri L.R
The matter came up for argument before this Court on
Judgment was reserved pending the filing of writtensubmissions by parties.
The submissions made by the Counsel for the petitioner were asfollows:
Section 2 of the Monetary Law reads as follows –
“The standard unit of monetary value in Sri Lanka shall bethe Sri Lanka rupees which shall be represented by thesigns Re. and Rs". Therefore, all decrees in this countrymust be entered in rupees.
No person can be ordered to pay money in a currency otherthan Sri Lankan rupees nor can writ be taken out andproperty seized in money other than in Sri Lankan rupees.If writ was taken in a foreign currency no person would beable to pay money in foreign currency. (Mercantile Agency vIsmail.) (2)
Even if there was a contract in a foreign currency and therewas subsequent default, the foreign currency owing mustbe converted into local currency and decree obtained forthat amount. (Weeramanthri – Law of Contract Vol 2paragraph 967 at page 945) (also paragraph 689 at page664).
The 2nd Schedule to the Civil Procedure Code hasstipulated that all costs are claimable in Sri Lankan rupees.Thus decree must therefore be also in Sri Lankan rupees.
An executable decree perforce had to be in Sri Lankanrupees since at the stage of execution, a writ can be takenout only in terms of the decree. The Court orderingexecution was bound to look only at the decree and makeorders accordingly. If the amount due happens to be in aforeign currency, for example, U.S. dollars, the decree mustbe entered in Sri Lankan rupees which would be equivalentto that sum of U.S. dollars at the time of payment.
The Court had the discretion to order conversion of theforeign currency to Sri Lankan rupees as at the date of
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Seylan Bank Ltd v Manchester Yarn and Thread (Pvt.) Ltd 307
(Wigneswaran, J.)
default, at the date of judgment or at the date of payment.In this connection the following were mentioned:
Harrisons & Crossfield v Adamaly (3)
Mercantile Agency v Ismail (supra)
Weeramanthri Law of Contract Vol II page 945
Conversion must take place at the time of decree since theCourt in each case had no jurisdiction to award damages ina foreign currency.
The learned Counsel for the petitioner argued that the judgmentin Cementation Company v Hotel International Ltd. abovesaid waswrongly determined. In any event it was pointed out that the saidjudgment did not consider whether or not a judgment could beentered in a foreign currency. The learned Counsel submitted thatjudgment in Sri Lankan currency equivalent to the foreign currencydue, was the proper manner in which judgment and decree couldbe entered, to be in consonance with the provisions of theMonetary Act and the Exchange Control Act. The English Lawprinciples would not apply to Sri Lanka since our law was statutorilyenshrined.
It was also pointed out by Counsel for the petitioner that even inEngland judgment could only be entered in sterling until thedecisions of Lord Denning were delivered. Lord Denning’sjudgments, were originally given in sterling because it was a stablecurrency. But in Schorsch Meier Gmb Hv Hennid4) Lord Denninghad opined that sterling was no longer a stable currency comparedto other currencies of Western Europe and in view of the Treaty ofRome, judgments could be given in other currencies. The learnedPresident’s Counsel argued that the reasoning of Lord Denningwas faulty since the question of judgments being given in sterlinghad nothing to do with the fact of pounds sterling being a stablecurrency. The stability of the pounds sterling was an irrelevantconsideration, he argued. He also argued that the Treaty of Romedid not give jurisdiction to a domestic Court to enter judgment inforeign currency. The reasoning of Lord Denning in any event hadno application to Sri Lankan Law and that the Treaty of Rome wasnot applicable to Sri Lanka. He further pointed out that LordWilberforce’s judgment in the said Eleftherotria case(5) was based
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on the question whether conversion had to be on the date of action,date of judgment or payment.
The learned Counsel finally reiterated that judgments mustnecessarily be in Sri Lankan currency but that the date ofconversion could be as at the date of the cause of action, date ofjudgment or date of payment.
The arguments of the Counsel for respondent were as follows:
The Bank Draft in this case was for 12,857 sterling pounds.Therefore the plaintiff prayed for judgment in a sum ofsterling pounds 12,857 or its equivalent in rupees. Hesubmitted that neither the Monetary Law nor the CivilProcedure Code prohibited a judgment being given in aforeign currency.
He pointed out that the Cementation Company Caseabovesaid gave judgment in favour of the plaintiff "in a sumof pounds 68,723 shillings 12 and pence 8 in sterling and inrupees at the exchange rate prevailing at the date ofpayment together with legal interest in terms of prayer(a)”.Similar judgment could be entered in this case too.
Referring to section 2 of the Monetary Law the learnedCounsel for the respondent submitted that the MonetaryLaw did not specify that all judgments must be given in SriLankan rupees.
He further pointed out that according to section 4(2) of theMonetary Law where an obligation is by agreementexpressed in any monetary unit other than Sri Lankanrupees the necessary conversion shall be effected on thebasis of the legal parities ruling at the time, if by somereason such agreement was rendered invalid or unlawful byany other written Law. He argued that since the presenttransaction did not come within the scope of foreigncurrency transaction which were prohibited or restricted, thequestion of conversion was not contemplated in suchtransaction. Therefore it was legal to have transactions inforeign currencies unless there was a statutory bar to suchtransactions being in foreign currency.
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Seylan Bank Ltd v Manchester Yarn and Thread (Pvt.) Ltd 309
(Wigneswaran, J.)
He further pointed out that the cases mentioned by the .learned Counsel for the petitioner were archaic authoritiesand that the law has developed and changed by judicialdecisions both in the United Kingdom and Sri Lanka.
He referred, to the decisions of owners of M. V. Eleftherotriav Owners of M V Despina Ft, {supra) Services Europe
Atlantique Sud (SEAS) of Paris v Stockholms(®) Rederiak-tiebolagsvea of Stockholm (the Folias)P) and Miliangos vGeorge Frank (Textile) Ltd. (8) He pointed out that the threedecisions in the Despina R, the Folias and Miliangos hadtogether transformed the English Law with regard to foreigncurrency judgments. This change in judicial perception, hesaid, was seen in Sri Lanka too in the determination madein the Cementation Company case.
He pointed out that a plaintiff who transacted business in ahard foreign currency would be subjected to severedisadvantages if he were to collect his dues in Sri Lankanrupees. Especially so, if the conversion was calculated atthe rate prevailing on the date of the breach.
He further pointed out that in Admiralty matters the HighCourt of Sri Lanka gives foreign currency judgmentsvirtually in every case decided in favour of the plaintiff.
He finally pointed out that there is no difference insubstance between the law of United Kingdom and the lawof Sri Lanka with regard to judgments being entered inforeign currencies.
The respective arguments of Counsel in this case wouldpresently be compositely dealt with.
It will be useful in this case to examine certain basic concepts inSri Lankan law. For example section 5 of the Civil Procedure Codeinterprets the word “decree" as follows – “decree" means the formalexpression of an adjudication upon any right claimed or defence setup in a civil court when such adjudication, so far as regards thecourt expressing it, decides the action or appeal".
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[2004] 3 Sri L.R
Thus a decree must formally express the Court’s adjudicationupon any rights claimed. When a plaintiff comes into Court statingthat there has been a breach of contract between him and thedefendant and that his rights under the contract must be upheld, ifthe Court believes that the plaintiff is entitled to the upholding of hisrights what in effect is the Court expected to accomplish byupholding the rights of the plaintiff? Is the Court not expected torestore the plaintiff as far as possible to a position where there hadbeen no breach of the contract but a fulfilment of the contract? Ifperceived from this angle a plaintiff must necessarily be entitled tojudgment in a sum of money in a currency which he expected at thetime when the breach took place. The principles to be applied inthis connection are that of restitutio in integrum and reasonableforseeability. There could be applied equally in contractualrelationships as well as in tortious liabilities. When section 217 ofthe Civil Procedure Code refers to a decree to pay money, theplaintiff reasonably expects the payment of such money to him inthe currency in which he had contracted. Not in any other currency.If the parties had contracted for the transaction to take place in aparticular hard currency, the defendant cannot be expected to paythe dues to the plaintiff in any currency as good. Not to pay in thecurrency in which the contract was entered into would amount to anabsence of consensus ad idem. The only reason why a plaintiffmay not be able to claim his dues in the currency in which he hadoriginally contracted, could be due to any statutory prohibitionwhich debars such payment in that particular currency. The learnedCounsel for the petitioner has not referred to any statutoryprohibition in Sri Lanka to the entering of a judgment in a foreigncurrency. He has only said that there would be proceduraldifficulties in executing a writ if and when a judgment is entered ina foreign currency. What the learned President’s Counsel had failedto take into consideration when making his submissions was that ina free market country as ours which has moved far away from astate manipulated, state regulated and state restricted economy ofthe past there could be foreign currency available for payment orseizure. Banks have allowed their customers to open non residentforeign currency accounts and resident foreign currency accountsin which foreign currencies are deposited and interest paid by Bankin foreign currencies. The question of the Court having the right to
ScSeylan Bank Ltd v Manchester Yarn and Thread (Pvt.) Ltd 311
(Wigneswaran, J.)
seize such foreign currency accounts had not been taken intoconsideration by the learned Counsel. Why should such foreigncurrency be converted into Sri Lankan rupees when seized beCourt?
It was wrong on the part of the petitioner to have said that wheredecree is entered in a foreign currency writ cannot be taken outbecause nothing can be seized. So long as the defendant islegitimately entitled to retain foreign currency in Sri Lanka, the plaintiffmust be entitled to seize such foreign currency in the hands of thedefendant or defendant’s debtors. Otherwise the plaintiff who entersinto a contract with another knowing that such other person hasforeign currency for disposal in Sri Lanka could be deceived by suchother person by breaching the contract and forcing the plaintiff to seizeSri Lankan currencies in lieu of foreign currencies. Not only that. If itwere to be argued that the Sri Lankan equivalent foreign currency atthe time of the breach was to be the sum to be adjudicated in thedecree, taking into consideration the delay in litigation and currencyfluctuation, the plaintiff would be subjected to immense disadvantagessince the amount recovered by the plaintiff would be far less than theactual amount due in foreign currency at the time of payment in SriLankan rupees. So long as the State for any reason does notcategorically prohibit the entering of decrees in foreign currenciesthere should not be any reservation in restoring the position of a partyto a contract as far as possible to the time or stage when the contractwas breached so that the contract as far as possible could be giveneffect to. The criticisms levelled at the Judge or Judges who hadformulated the English law decisions in this connection were mostuncharitable. Incidentally Lord Denning was not on the Bench of theHouse of Lords which decided Eleftherotria case or the Folias case orMiliangos case. He decided Tehhu (owners) and Owners of Cargoand Freight v Nippon Salvange Company<9) (dissenting opinion),Yugosiavenska Oceanska Plovidba v Castle Investment Company<1°)and Schorch (supra). In a rapid, transforming world, a Judge orJudges who prefer to keep abreast of the changes taking place allover the world are to be congratulated rather than criticized. Many ofthe problems which a litigant faces today in the modernmetamorphosed world were not faced by our parents and forefathersin the early part of the last century when the case of MercantileAgency v Ismail (supra) was decided.
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When section 2 of the Monetary Law refers to the standard unitof monetary value in Sri Lanka as being the Sri Lankan rupee itdoes not mean that judgments cannot be given in foreigncurrencies. It could only be inferred that where foreign currency isnot available for payment or seizure what should be seized shouldbe converted to the standard unit of monetary value in Sri Lankabecause the foreign currency is not a Standard unit of monetaryvalue in Sri Lanka. Standard unit being Sri Lankan rupees does notmean other currencies are not recognized in Sri Lanka.
Often writs are entered for the seizure of a vehicle or in thealternative its value in Sri Lankan currency. If the vehicle is notavailable for seizure, the plaintiff is entitled to recover its value inSri Lankan currency. Therefore the question arises as to what couldprevent a judgment being entered in a foreign currency if it could berecovered and if unavailable in foreign currency to be recovered byits conversion rate in Sri Lankan currency. Any attempt to restrictdecrees to be entered only in Sri Lankan currencies would affectInternational Trade and Commerce via Sri Lanka in the moderncontext. During the last 28 years or so, currencies have been seento be floating and their relative values have often changed day today. Commercial practices moreover have adapted themselves tothe realities of currency fluctuation.
Many Arbitrators now make their awards in foreign currencies.As pointed out by the Counsel for the respondent admiralty awardsare often made in foreign currencies and not in local currencies. Ifthe argument of the learned Counsel for the petitioner is correctsuch awards made in foreign currency should be illegal since a SriLankan court would not have any jurisdiction to enter a decree incurrencies other than Sri Lankan rupees. To quote with respectLord Wilberforce in the Miliangos case (supra 768) – “The lawshould be responsive as well as, at times enunciatory, and gooddoctrine can seldom be divorced from sound practice". Merelybecause in late 19th century and early 20th century decisions weremade by Courts that judgments could not be given in a foreigncurrency at a time when Nations and States were functioning moreor less in water tight compartments, it does not mean that thosedecisions must be given effect to in the 21st century as well whenNations are joining together in economic unions, and trade andcommerce have transcended the frontiers of national boundaries.
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Seylan Bank Ltd v Manchester Yam and Thread (Pvt.) Ltd 313
(Wigneswaran, J.)
I would therefore hold that the plaintiff in this case is entitled toobtain judgment in a currency other than Sri Lankan rupees sincethere is no law which prohibits such a decree being entered. Whenentering judgment in a foreign currency it is also necessary that therupee value at the exchange rate prevailing at the date of paymenttogether with legal interest should also be entered therein.Therefore if the foreign currency with the legal interestcontemplated at the time of contract or in contemplation of the lawat the time of contract was not forthcoming or such foreign currencycannot be seized, then the rupee value of the exchange rate maybe claimed at seizure. This would mean for example that, if there isa sum of money in Sri Lankan rupees in the hands of a debtor to adefendant, the plaintiff creditor cannot insist that the said sum ofmoney in Sri Lankan currency should be converted into anappropriate foreign currency and be paid to the plaintiff. But on theother hand if the appropriate foreign currency for which the decreehad been entered is in the hands of the defendant or his debtorssuch foreign currency could be seized by the plaintiff. I thereforeconclude in answering the substantial question of law in this caseas that the plaintiff would be entitled to obtain judgment in acurrency other than Sri Lankan rupees.
S. N. SILVA CJ.,-I agree
WEERASURIYA, J.-I agree
Plaintiff is entitled to obtain judgment in a currency other than inSri Lankan rupees.